The Sector- Wide Approach

Transcription

1 The Sector- Wide Approach organising principle for bilateral development cooperation Version 2 Sector-Wide Approach support group 2004

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3 Contents 1. Introduction The sector-wide approach: background, definition and key elements Background to the sector-wide approach Definition of the sector-wide approach The sector-wide approach and poverty reduction Key elements of the sector-wide approach Macro-micro perspective Partnership and ownership Multi-actor roles Good governance, institutional development and capacity building Donor coordination and harmonisation Multiannual perspective The sector-wide approach in the context of Dutch development cooperation policy Phases in the sector-wide approach The sector-wide approach: aid modalities The sector-wide approach and the NGO and multilateral channel The sector-wide approach: an interim appraisal Management framework and financial risks Monitoring Organisational implications Process of change: the missions Process of change: the ministry Issues and dilemmas relating to the sector-wide approach...34 The sector-wide approach: key messages at a glance...36 Abbreviations...38 Bibliographical references

4 1. Introduction The sector-wide approach as an organising principle The decision in 1999 to introduce the sector-wide approach as an organising principle for Dutch bilateral development cooperation policy has prompted many changes. Not only has it meant introducing different policy, it has also and most importantly entailed a change of mentality and a new way of working. Over the past four years, much has been done to foster this process of change. New policies have been formulated and existing procedures adapted. Knowledge and experience has been exchanged on many levels. Seminars and workshops have been organised and training courses held. Temporary working groups have examined sub-themes. Aspects of personnel policy have been revised and new monitoring instruments introduced. All this has taken place against a background of ongoing change. The Poverty Reduction Strategy Papers (PRSPs), for example, were phased in very soon after the launch of the sector-wide approach. The 21 DAC targets were replaced by the Millennium Development Goals (MDGs). The Dutch government revised its budgeting and accounting system in the From Policy Budgets to Policy Accountability (VBTB) operation. Other donors are also showing a growing interest in the sector-wide or programme-based approach. Inter-donor cooperation is intensifying and has moved up the political agenda. It is also moving from information exchange through coordination to harmonisation. The term sector-wide approach is becoming increasingly established. This does not mean it is no longer being discussed, but the debate has moved in a new direction. Initially focused on underlying principles, it now concentrates on implementation issues and results. In other words, Dutch policy on the sectorwide approach has been evolving. Policy on the sector-wide approach is evolving Before 1999, the sector-wide approach had been applied on a sporadic basis, mainly in the health and education sectors. Even so, phasing it in as an organising principle for bilateral development cooperation has involved many changes. Experience has had to be acquired on the job. Some of the early catchphrases, such as no more projects, no longer apply. Others, like think micro, act macro, have been reaffirmed. Dutch development cooperation policy as a whole is also evolving. The policy memorandum Mutual interests, mutual responsibilities (October 2003) discusses these changes while at the same time stressing the need for continuity. It reaffirms the sector-wide approach as the organising principle for Dutch bilateral development cooperation, thereby confirming its status as a working method. What this implies in practice will be detailed in this document. 3

5 At the same time, the number of sectors receiving Dutch aid will be limited to two or at most three per country. This has been translated into country-specific proposals in the annual plans for Extra attention will be given to the following policy themes: Basic education Reproductive health HIV/AIDS Environment Water Other policy priorities mentioned in Mutual interests, mutual responsibilities which tie in with the sectorwide approach are partnership, good governance, civil society and the private sector. One key feature of the sector-wide approach is that it is not simply a technical or budget-related exercise. It is very much concerned with political issues such as access to public services, the ability to influence and participate in decision-making processes and transparent budgets and expenditure. The political dimension of the sector-wide approach access to power and power-sharing will therefore be given increasing attention. In June 2000 the government published its first (and so far only) policy memorandum on the sector-wide approach. Since the policy had not yet been fully formulated, this memorandum was regarded as the first in a series. Frequently consulted and quoted, it has proved a valuable set of guidelines. However, it is now time for a new version of the memorandum. Like the first, this new version summarises and consolidates what has been achieved so far. Wherever possible, it refers to existing documents. 1 This version replaces its predecessor. Although this document is intended for internal use, it can obviously also be shared with external partners. Readers should note that while it explains how the sector-wide approach fits into development cooperation policy as a whole (in relation to coherence, Poverty Reduction Strategy Papers, WTO, harmonisation, etc.), it does not go beyond a discussion of the sector-wide approach itself. Contents This document takes a look at some of the early concepts related to the sector-wide approach and elaborates them on the basis of experience gained since It also considers associated dilemmas and issues that have not yet been systematically or adequately addressed. Examples are given wherever possible. 1 For on-line documents a hyperlink is given. 4

6 The document discusses the background, definition and key elements of the sector-wide approach (chapter 2); the sector-wide approach in the context of Dutch development policy (chapter 3); the organisational implications of the sector-wide approach (chapter 4) and dilemmas and unresolved issues (chapter 5). Each section begins with a key message. 5

7 2. The sector-wide approach: background, definition and key elements 2.1 Background to the sector-wide approach Key message: The sector-wide approach springs from the realisation that fragmented, project-based aid has too little impact and is insufficiently sustainable. The sector-wide approach is the organising principle for Dutch bilateral aid. The sector-wide approach was sparked by a series of project evaluations and studies on the effectiveness of Dutch aid during the 1970s and 80s. These found that much of this aid had too little impact and was insufficiently sustainable. Many projects collapsed as soon as foreign experts left and funding dried up. The evaluations concluded that if aid was to have a lasting impact, the following conditions must be satisfied: the recipient country must practice good governance and be pursuing a good macroeconomic and socioeconomic policy; ownership of and responsibility for policy and its implementation must lie with stakeholders in the recipient country; aid (including aid provided by other donors) must be coherently deployed and not spread too thinly; coordination of policies and aid management among donors and between donors and governments must be effective. Fundamental principles Many of the principles and assumptions on which Dutch development cooperation is currently based are outlined in Shaping the 21st Century: the contribution of development cooperation, which was published in 1996 by the Development Assistance Committee (DAC) of the OECD. It defines an approach in which development strategies are based on partnerships, led by the governments of recipient countries and coauthored by a range of stakeholders (civil society, the private sector and donors). Shaping the 21st Century is widely endorsed by the donor community. Aid architecture In recent years, the sector-wide approach has gained an established place in what is sometimes referred to as the aid architecture. Central to this architecture are the Millennium Development Goals (MDGs) and their targets and accompanying indicators, which together set a common agenda for the international community. 6

8 Many developing countries have translated these aggregated goals into national Poverty Reduction Strategies 2 (PRSs) linked to incentives (debt relief and supplementary donor funds). A good PRS should contain a sound poverty analysis. It should also set priorities, including making budgetary choices aimed at poverty reduction. These choices are frequently expressed in terms of priority sectors or themes. In the context of the PRS, the sector-wide approach operates at the sector level. Many of the key aspects of the sector-wide approach partnership and ownership, thinking micro and acting macro, broad participation, a focus on institution-building, donor harmonisation, and different aid modalities also apply to PRSs. There is a clear link between the PRS and the sector-wide approach. Yet the sector-wide approach can be applied even in cases where there is no PRS, provided a national development policy is in place. The ability to attain the Millennium Development Goals (MDGs) by means of PRSs and the sector-wide approach also depends on developments in world trade and in peace and security. Since these aspects are so crucial, they receive considerable attention in Dutch foreign policy, for instance through the creation of a unit in the ministry which deals with issues of policy coherence, and a stability fund. Yet while there is clearly an interface between these issues and the sector-wide approach, they will not be discussed any further in this document. 2.2 Definition of the sector-wide approach Key message: The sector-wide approach is neither a dogma nor a blueprint. Rather it is a working method. It is an organising principle based on a reallocation of responsibilities and therefore involves fundamentally different roles for the various stakeholders compared with project aid. International definition of the sector-wide approach At international level, the sector-wide approach is defined as a process in which funding for the sector, whether internal or from donors, supports a single policy and expenditure programme, under government leadership, and adopting common approaches across the sector. It is generally accompanied by efforts to strengthen government procedures for disbursement and accountability. A sector-wide approach should ideally involve broad stakeholder consultation in the design and implementation of a coherent sector programme at micro, meso and macro levels, and strong coordination among donors and between donors and government. 3 The Netherlands interpretation of the sector-wide approach ties in with this international definition and involves a commitment to long-term support for a particular sector. The sector-wide approach: a working method 2 Or comparable national development plans. 3 See Key Sheet no 7. Sector-Wide Approaches (SWAps) 7

9 It is important to understand that the sector-wide approach is neither a dogma nor a blueprint. Nor is it designed to provide developing countries with a blank cheque under the guise of ownership. Rather, it is a way of working, an organising principle. The sector-wide approach implies a partnership which involves the simultaneous deployment of different aid modalities. It is a means, not an end. Its ultimate goal is and remains poverty reduction. As a working method, the sector-wide approach covers many aspects. It represents a different way of thinking and, above all, acting. This applies not just to individual actors in developed and developing countries but also to the way in which aid in general is organised matters which will be looked at in detail below. Definition of a sector Since the sector-wide approach deals with country-specific sectors and themes, the term sector needs to be defined flexibly. In Dutch policies a sector is defined as a coherent set of activities at micro, meso and macro levels within clearly defined institutional and budgetary frameworks for which the government has formulated a specific policy. This definition has been applied from the outset and is still valid. The Netherlands has taken the position that recipient countries need not necessarily nominate classic sectors such as health or agriculture. They can also nominate subsectors or themes, provided these are clearly defined subsectors/themes for which policy has or will be formulated. Wherever possible, the sector-wide approach will also be applied to the new priority areas of Dutch aid policies (basic education, reproductive health, HIV/AIDS, environment and water). In most cases this is already happening. 2.3 The sector-wide approach and poverty reduction Key message: Poverty reduction via the sector-wide approach aims to influence processes that reduce and ultimately eradicate poverty. Key objective: sustainable poverty reduction Sustainable poverty reduction remains the key objective of Dutch development cooperation policy. It is in this context that the sector-wide approach must be viewed and applied. Poverty has several, interrelated dimensions. The Netherlands endorses the DAC Poverty Reduction Guidelines, which identify five dimensions of poverty: economic, political (rights, participation, freedom), social (health, education, nutrition), sociocultural (status and dignity) and vulnerability. There are also two cross-cutting themes: the environment and gender equality. Sustainable poverty reduction is about trying to improve the lives of the poor in all these areas. These processes can take place at micro, meso or macro level. It is therefore a matter of simultaneously promoting sustainable economic growth (pro-poor growth) and sustainable social development (providing basic social amenities, fostering social cohesion and reducing social and cultural exclusion), 8

10 empowering the poor and vulnerable, and protecting and improving the management of the natural environment. The sector-wide approach tries to achieve this by influencing and supporting the sectoral processes and institutions that reduce poverty rather than funding poverty projects that focus on specific target groups. Cross-cutting themes (GAVIM) 4 The sector-wide approach is not simply a question of recipient demand and donor supply. Dialogue on policy and its implementation will always be necessary. The Netherlands conducts this dialogue with poverty reduction as the main objective and the other GAVIM themes (good governance, women, institutional development and the environment) as elements that must always be taken into account. As a result, political aspects such as fighting corruption and strengthening democratic institutions and human rights must also be addressed where necessary. This calls for sound analysis of such processes and interventions an area in which improvements are still needed. Policy dialogue can also refer to existing international conventions and agreements such as the Rio Conventions (the Convention on Desertification, the Framework Convention on Climate Change and the Convention on Biological Diversity), the World Population Conference in Cairo, the Social Summit in Copenhagen, the World Conference on Women in Beijing, the Habitat Conference in Istanbul, the Monterrey Summit and the World Summit on Sustainable Development (WSSD), plus the Millennium Development Goals. The relationship between the sector-wide approach and the GAVIM themes is outlined in a document 5 published in 2000 which is still relevant. The following questions often arise when the sector-wide approach is applied: (1) how can donor wishes and requirements concerning good governance, gender, institutional development and the environment be reconciled with the principles of partnership and ownership? and (2) should all these themes be given equal weighting? There are no clear-cut answers to these questions, so a case-by-case professional assessment is needed of what is feasible. Obviously, if a government is, say, highly committed to a specific sector policy which will clearly have an adverse effect on women or the environment, then a policy dialogue must be conducted. 2.4 Key elements of the sector-wide approach The sector-wide approach is not an end in itself but an organising principle, a process-based method of operating and cooperating. Its aim is to increase the impact of aid by improving its quality and effectiveness. The key elements of this working method are a micro-macro (planning) perspective, an 4 GAVIM = Good Governance, Poverty, Women, Institutional Development and Environment. 5 GAVIM and the Sector-wide approach, August

11 emphasis on partnership with, and ownership by, the recipient country, a multi-actor approach, institutional development, donor harmonisation and a multiannual perspective Macro-micro perspective Key message: Think micro, act macro. Context Experience has shown that fundamental and structural solutions to poverty can only be found through a broad-based approach which ties in with the policy of the recipient country. Many of the causes of poverty have their origins in administrative inefficiency, such as deficient sector policy-making and implementation, weak institutions, inefficient financial institutions, inappropriate macroeconomic policy, and corruption. Project-based bilateral cooperation did not take sufficient account of these factors and therefore did not produce sustainable outcomes. Too often, it did little more than create temporary islands of happiness in an ocean of misery. The sector-wide approach takes more account of the context-specific processes that generate and perpetuate poverty and which therefore play a decisive role in the development of the countries concerned. How to act The rule of thumb is: continue to think micro but act macro In practical terms, this means: linking up to national poverty strategies such as the PRSs. Support for sector policy through the sector-wide approach must form part of a national poverty strategy which integrates poverty goals into the macroeconomic framework; helping to improve the quality of PRS processes. This includes encouraging input from governments, NGOs and the private sector in the design, adjustment and monitoring of a national poverty strategy. It also means drawing the various poverty dimensions (gender, environment, etc.) into the dialogue with the national (and sometimes local and regional) governments of recipient countries; supporting solutions to cross-sector and cross-cutting problems. Coordination between PRSs and the sector-wide approach is often inadequate. The success of the sector-wide approach often depends on factors outside the sector. For example, if public finances are not properly managed and/or civil service reform is not tackled, many sectors will never make genuine progress; supporting the development and implementation of a sector policy based on sound poverty analysis. Poverty analyses at micro level must be the starting point and yardstick for all dialogue and negotiation with ministries on sector policy and its implementation; strengthening institutional capacity within the sector at all levels: macro, meso and micro. It also means strengthening all aspects practical, financial and manpower-related from policy formulation to implementation and monitoring. This support is not restricted to government but 10

12 extends to all the organisations that are active throughout the sector. The problem often lies not so much in funding or planning. It is all about putting good plans into effect. That is when the real problems come to light; striving for coherence at all levels. In theory, interventions can be applied at any level (micro, meso, macro). But they must be coordinated with, and based on, sector policy; encouraging the use of monitoring instruments at sector and micro level. A wide range of instruments is available. When the sector-wide approach was first introduced, it was often mistakenly thought that the door was now closed to project aid and that the aim was to switch to on-budget support 6 in a sector or even general budget support at the earliest opportunity. This is certainly possible, and in fact desirable, in countries whose governance inspires sufficient confidence, but that is not always the case. Yet where there are clear prospects for structural improvement in a country, the Netherlands will do its best to assist processes at macro level which foster such change. One good option is to provide joint donor support for a country s sectoral and poverty policies, flanked by programmes to improve public sector management. Reality checks In practice it is often difficult for donors to monitor what is happening at micro level. After all, their main discussion partners are national governments, many of which are themselves ill-informed due to inadequate monitoring structures or an unwillingness to listen to or appreciate the diversity of their poor populations. The progressive withdrawal of technical assistance has also made it harder for donors to directly see the impact of policy on a day-to-day basis. Carrying out reality checks (such as applying monitoring instruments at micro level, commissioning research and evaluations and conducting regular field visits), preferably with other donors and the partner government, can reduce the risk of abstract pronouncements and unsubstantiated decisions. Decentralisation 6 In the definition currently applied by the Netherlands, donor support is designated as on-budget if it is in line with (a) parliament s mandate to adopt or amend the state budget and monitor its implementation and (b) the government s responsibility to draft the budget and adequately direct spending. 'On-budget' support ties in with the recipient country s existing legislation and procedures, and donor funds are transferred to a consolidated account in the name of the recipient government. Typical forms of donor support which satisfy these criteria are general budget support and sectoral budget support, provided they involve no effective earmarking of funds. Other forms of donor support, such as basket financing, pooled funding and project financing, restrict parliament s ability to exercise its mandate and government s ability to carry out its responsibilities and are therefore designated as off-budget support. 11

13 It is important to note that issues related to decentralisation frequently take centre stage in the micromacro thinking prescribed by the sector-wide approach. This is because progress within a sector ultimately depends on achieving positive effects at micro level. Effective service delivery by the local government, civil society and the private sector is essential, and not just in the health and education sectors. Obviously, decentralisation is also a cross-sector issue. In fact, strengthening the decentralisation of government services in general is a core area of support in some of the Netherlands partner countries. Where possible, the sector-wide approach is applied here too as a working method, in which case it becomes a cross-cutting activity in support of conventional sectors. The issue of decentralisation is being given increasing attention. The European Centre for Development Policy Management (ECDPM) recently studied the relationship between the sector-wide approach and decentralisation in five countries Partnership and ownership Key message: Partnership, ownership and public support increase the effectiveness and sustainability of poverty reduction. Yet even when these are in place, the real problem is often the lack of implementing capacity. Partnership When the sector-wide approach was first introduced, the main emphasis was on ownership. Yet while the term ownership adequately conveyed the direction in which development cooperation was then moving, the concept proved difficult to implement unambiguously. The concept of partnership, which has now come into use, reflects the present focus on achieving the right balance between commitment and responsibility on the part of all actors, including donors. Ownership, by contrast, focuses mainly on the responsibilities of recipient countries. Partnership is based on the added value generated through cooperation between different actors. In a partnership, these actors combine their respective skills, knowledge and other resources to attain a goal which is endorsed by all the parties but which cannot be attained by any one of them alone. The following basic principles apply to partnerships in the context of international development cooperation: I. representatives from the three key sectors government, civil society and the private sector must be involved throughout, from policy to implementation; 7 ECDPM; Relating Sector-Wide Approaches and Decentralisation - Towards Greater Policy Coherence: a preliminary synthesis of issues. March This document is based on a review which was conducted in Benin, Bolivia, Burkina Faso, Tanzania and Uganda between April and November

14 II. III. each partner must be committed to common goals and processes, and must be accountable for the results; partnership must be based on local needs and on a participatory and transparent assessment of the costs and benefits of participation. Implementing problems Over the past few years, the Netherlands has tried to put the international consensus concerning ownership into practice (in other words, to encourage developing countries to take responsibility for their own development). This has not always been easy. In the imperfect context of weak local institutional capacity for policy formulation and implementation, and the conflicting interests of the rich and poor, the concept of ownership must be applied with care. Weak financial management capacity is an issue of particular concern to donors. In countries where donor support forms a substantial share of the national budget, there is a genuine risk that PRSPs and SWAps come to be regarded as vehicles for donors ganging up on recipient governments in order to dictate their own agendas and priorities. Conversely, in countries where aid makes up only a small percentage of the national budget, ownership by national governments will not automatically lead to effective poverty reduction or to the attainment of the MDGs. 8 Questions A number of questions arose. For example, does the fact that developing countries are responsible for their own development mean that aid can no longer be made conditional? Or is the relationship really based on partnership, on a two-way commitment in which each partner has certain rights and obligations? Precisely who do we mean when we speak of the recipient country? At what level should ownership be defined and how do we reconcile the different views and interests of the various owners? Should we simply apply measures at the highest aggregate level and ignore underlying political tensions and dynamics? Is it just a matter of intentions and plans, or should there be a greater focus on action taken and results achieved? When answering these questions, it is important to remember that the effectiveness and sustainability of poverty reduction are paramount. Partnership, ownership and broad public support are key prerequisites, according to many evaluations and studies. Sometimes this implies that short-term effectiveness must be sacrificed to long-term impact. There are no golden rules to apply here, although some operational guidelines exist. 8 There are admittedly some exceptions. The international community is currently on track as regards the first of the MDGs (halving global poverty by 2015). This is almost entirely down to large countries such as China and India. However, it is off track as regards the other MDGs (source: World Development Report 2004). 13

15 Rules of thumb: always tie in with the objectives of the agreed sector policy; 9 analyse the interests of the main stakeholders and the existing institutional capacity before deciding on levels of intervention and aid modalities; take account of existing capacity to formulate and implement policy; make partnership explicit and operationalise the concept in each support activity: who owns what and what does this imply?; if there is commitment, focus attention on implementation and implementing capacity. Concentrate on attaining the results pledged by the owner and on removing any obstacles; reserve the right to discontinue support if a partner fails to deliver. Follow this through if necessary (adopt a businesslike relationship). Partnership and mutual responsibilities mean being able to take your own decisions but also making sure you can live up to your responsibilities Multi-actor roles Key message: The sector-wide approach is not simply a question of government-to governmentcooperation but involves donors in a complex political interplay consisting of many different stakeholders and political interests. The challenge is to acknowledge the various actors, identify the motives underlying their involvement, and make explicit your own role as donor organisation. A multiplicity of stakeholders The introduction of the sector-wide approach entailed a major shift of emphasis towards government to government support. In bilateral aid relationships, ownership by the recipient country has been interpreted as follows: the government of the recipient country is committed to the formulated policy and can be held accountable for its implementation. However, it is gradually also being recognised that the government is not the only partner within the sector-wide approach. After all, policy has to be formulated in consultation with a variety of actors both within and outside government and preferably in the context of participative policy-making processes. Empowerment (of and by disadvantaged groups) and social inclusivity go hand in hand and require a strategy based on coalitions and the provision of strategic support for a range of processes and partners. Experience has shown that this takes time and that donors often need to know and understand more about processes of change. In many cases, such understanding could lead to greater investment in supporting or engaging agents of change both within and beyond government. 9 Often, a sector policy has not yet been formulated (see chapter 3 of this document). This is not necessarily a problem. It can often take some time to define a sector policy which is acceptable to all 14

16 Political realities The sector-wide approach is linked to an all-embracing national policy for which the PRSP provides the overall framework. PRSPs and sector policies are often designed mainly on the basis of a dialogue between donors and technocratic administrators and civil servants. Yet these western-style administrative systems often conceal other social and political realities, something donors have not always fully appreciated. In a multi-actor approach, it is therefore important for donors to recognise and acknowledge opposing political interests and influences in order to make an effective contribution. The role of civil society is also far from straightforward. In most countries, civil society covers a broad spectrum of interests linked to very different roles and ambitions. Unfortunately, donors are still failing to fully analyse these interests. 10 Yet it is crucial in the context of the sector-wide approach to at least distinguish between representatives who regard themselves primarily as implementers and those who are lobbying for political reform. Both have a role to play in processes of change, but choosing who to work with and how can differ widely. 11 Strategic cooperation with the Dutch cofinancing organisations (MFO s) can provide added value in such situations. Over the years, these organisations have built up long-term networks of partners in many countries. This generates knowledge and experience which can boost the effectiveness of aid. The Dutch government is partnering constructively with cofinancing organisations in Bolivia, Vietnam and Uganda Good governance, institutional development and capacity building Key message: Development is about reform and social transformation. Good governance is a precondition for sustainable poverty reduction and will therefore be given increasing attention over the coming years, not just at sector level but above all at cross-sectoral level. Institutional development involves rewriting the formal and informal rules that define social relations and thus places a strong emphasis on political and cultural factors. Capacity building has to contribute to this social transformation and therefore goes beyond the mere transfer of knowledge and skills. Good governance the stakeholders. In that case, support should concentrate on helping to bring about sector policy. The other operational guidelines listed above will still apply, however. 10 The International Training and Research Centre (INTRAC) in the UK is one of the few organisations to have developed a process for systematically mapping these different interests. 11 See also an attempt to analyse the roles of civil society in SWAps in a report commissioned by NORAD. Stein-Erik Kruse; SWAps and Civil Society; The Roles of Civil Society in Sector Programmes, NORAD, Oslo, December

17 Good governance occupies a key role in the policy memorandum Mutual interests, mutual responsibilities. 12 Attention for good governance is therefore growing. 13 This calls for a dialogue on human rights, democratic principles, anti-corruption measures and a good business and investment climate, among other things. Many aspects of good governance are cross-sectoral in nature and must therefore be analysed and discussed at the macro level. However, issues such as human rights, democratic principles and corruption also manifest themselves at sectoral level and this requires explicit attention. Institutional development Development is above all a process of social innovation and change. Poor governance, corrupt political elites and poor coordination between formal, generally western-style institutions and their informal local counterparts more often cause problems in developing countries than lack of funding or a shortage of technical know-how. 14 Institutions determine individual and collective behaviour and are often seen as defining the rules of play. In more political terms, they are also mechanisms for regulating power, often with the aim of maintaining the status quo in line with the prevailing norms and values. The essence of institutional reform in the context of social transformation is to ensure that regulatory and decision-making processes do not systematically exclude certain groups. Defining development in terms of institutional reform involves a greater emphasis on the influence of politics and culture. Capacity building The term capacity building began to gain prominence with international development organisations during the 1990s. It now no longer refers exclusively to strengthening organisational capacity but also covers measures to develop the capacity of society as a whole. Capacity building and institutional development are thus two sides of the same coin. In the context of the sector-wide approach, donor organisations must consider how best to support local (organisational) capacity within a sector and how these sector plans relate to cross-sectoral programmes such as decentralisation processes, public sector reforms, public information campaigns and training programmes (such as leadership courses for women). Capacity building/institutional development also involves making contributions to these crosssectoral programmes, many of which are enabling programmes designed to promote inclusive institutions, better governance and social confidence, accountability and participation. There is a limit to the extent to which capacity can be imparted or taught. In recent years, donors have come to realise that there is little point in developing capacity through the injection of technical 12 Section 4.2 of Mutual interests, mutual responsibilities contains a clear definition of the term good governance. 13 The Human Rights and Peacebuilding Department (DMV) at the Ministry of Foreign Affairs is drafting a policy memorandum/manual on good governance. 14 Jean Bossuyt: Mainstreaming Institutional Development; why is it important and how can it be done?; ECDPM, October

18 assistance from outside unless it is geared to deepening locally applicable and relevant knowledge. Evaluations have shown that technical assistance solely geared to the transfer of knowledge has little lasting impact. After all, capacity building is not merely a question of transaction but of transformation rooted in local knowledge and capacities. Capacity building is thus primarily an endogenous process, yet one that can also be externally facilitated. However, this does not mean that we must unquestioningly preserve local capacities and knowledge that are clearly rooted in traditions which are in need of reform. For example, some educational curricula may advocate stereotypical gender-based and ethnic roles. Capacity building based on this type of local knowledge affords little prospect of social transformation. Institutional analysis Institutional analyses are useful as long as they are carried out in cooperation with the relevant stakeholders and with due regard for prevailing political interests. It therefore follows that institutional analysis must above all address the question of whose interests are and whose are not represented by the existing institutions and what is the scope for reform. If institutional analyses are conducted by national actors, they can yield long-term insights and encourage capacity building. In the context of the sector-wide approach, an analysis carried out with the relevant implementing organisations can itself produce striking results, such as the creation of ownership and greater commitment. One key prerequisite, however, is that during the early stages of cooperation a careful assessment is made of the various players and the balance of power between them; in other words, of the institutional dynamics. This can reveal that the problem lies not so much in a lack of capacity as in the absence of shared goals and priorities. Once again, this clearly shows that there is no such thing as a neutral field of play and that the political dimension must always be taken into consideration. Reform processes are by their nature political and slow-moving, and rarely make for harmonious relations. Conflicts and HIV/AIDS Social transformation assumes another dimension in conflict situations. If traditional frameworks are destroyed and the future becomes uncertain, the goal of social transformation will sometimes seem unattainable for larger groups of marginalised people. At this stage in particular, it is appropriate for the international community to step in. The key question is whether it has the political will to acknowledge the potentially disastrous impact of the existing situation in terms of negative fall-out for local capacity, political change, peace and stability At the same time, one commentary on a previous version of this document wondered whether the multiplicity of new responses and initiatives (including the global funds) might not in fact overburden, bypass or even damage existing systems rather than resolve problems. 17

19 The current HIV/AIDS epidemic, which has so far claimed 25 million lives and infected a further 40 million people, 95% of them in developing countries, is undermining social transformation, including the scope for capacity building and institutional development. Once again the question is whether governments, donors and international organisations have the political will needed to turn the tide Donor coordination and harmonisation Key message: Effective coordination and harmonisation between donors and between donors and recipient governments is essential to the success of the sector-wide approach. Without effective coordination and harmonisation between donors and between donors and recipient governments, the sector-wide approach is doomed to failure. 16 Coordination in this context refers to coordinating policy in the framework of a Poverty Reduction Strategy or sector programme. Harmonisation relates to harmonising operational guidelines, procedures and working methods (both between donors and between donors and recipient governments) to reduce transaction costs. Harmonisation: an interim assessment Harmonisation focuses on national procedures and systems, where adequate, and on support to improve these systems, where necessary. Experience in recent years has shown that harmonisation works best in countries whose governments support it and are taking active steps to achieve it. Harmonisation has been given increasing attention in recent years and is now high on the agenda. Dutch embassies in countries with which the Netherlands has a bilateral aid relationship spend much of their time and energy working to bring about various forms of harmonisation. At international level, the Netherlands is contributing to stocktaking exercises and to the establishment of 'good practices' and codes of conduct to promote harmonisation at country level (within the EU, with its Utstein partners, the World Bank, the OECD/DAC and the SPA). These efforts have had varied success. Some countries (Uganda, Tanzania, Vietnam) have achieved a high degree of harmonisation, with less likeminded donors also taking part. In other countries, however, harmonisation is still limited to sector programmes in which donors agree among themselves on a number of procedures. The Netherlands believes that by signing the final declaration of the High Level Forum on Harmonisation in February 2003, 17 enough donors have committed themselves to the harmonisation agenda to enable 16 In Logical Framework Analysis terms, donor coordination and harmonisation are killing assumptions ; in other words, they are crucial to the whole operation. This is reflected in the growing attention for these issues both at national and international levels. 17 Rome Declaration on Harmonisation, 25 February

20 real progress to be made. Good reference material is now also available (OECD/DAC s Good Practice papers) 18 to support harmonisation. Studies 19 have shown that existing Dutch rules and regulations are flexible enough to achieve far-reaching harmonisation. Where problems do occur (for example due to differing interpretations of existing rules and regulations or the introduction of new ones, 20 ) these difficulties can be addressed in The Hague. Ongoing harmonisation: an area of rapid change The Netherlands is taking steps towards further harmonisation, both within the ministry and in the partner countries: The Financial and Economic Affairs Department (FEZ) has appointed a harmonisation coordinator to oversee the harmonisation of procedures and regulations at the ministry head office in The Hague. This will involve work at international level as well as within the ministry itself. Many excellent initiatives are now under way, not all of which can be mentioned in this document. However, it is important to be aware of them and to find out about them from the harmonisation coordinator. Examples include the initiatives in Zambia and Vietnam described below. Embassies can promote the development of country-specific harmonisation plans setting out concrete priorities and proposals endorsed by the government and at least a core group of donors. This will often be a lengthy process centring on support for government reforms and strengthening institutions ; We also need to re-examine some of the donor practices we have until recently accepted without question. Harmonisation involves making better use of our own limited capacity and that of recipient countries by organising joint donor missions and policy dialogues, by arranging joint training and workshops, by sharing expertise, reports, analyses and technical assistance capacity and by concluding agreements for mutual representation on consultation and coordination platforms. Forms of 'silent partnership' can serve as examples; Finally, it is important to keep up the pressure by monitoring progress and calling each other to account. The Harmonisation in Practice initiative in Zambia This initiative is an interesting pilot launched by the Directors-General for Development Cooperation of a number of like-minded countries. The aim is to make tangible headway in promoting harmonisation in close cooperation with the Zambian authorities 18 Harmonising Donor Practices for Effective Aid Delivery: Good Practice Papers - A DAC Reference, December 2002 (www. oecd.org) 19 Donor Accountability Report, Crown Agents Such as silent partnerships 19

21 General lessons in harmonisation from Vietnam A group of like-minded donors in Vietnam launched two comparative studies: one on transaction costs and the other on aid procedures. These costly and complex studies led to a series of recommendations. Unfortunately they proved difficult to implement, mainly because requests from the field to adapt procedures met with resistance from the various head offices. Lesson 1: Adapting existing procedures requires commitment from head offices, which need to extend the necessary mandate to the missions. This problem rarely arises for countries where delegation is the norm (the Netherlands, UK). Too strong an emphasis on harmonisation as an end in itself and on the need to await the green light from head offices undermines the ultimate goal of harmonisation (to improve the effectiveness of aid). In Vietnam, donors therefore opted for a progressive approach based on developing new activities rather than rewriting existing procedural guidelines. Lesson 2: Existing procedures generally provide enough scope for cooperation to satisfy even the most demanding of donors. In Vietnam, this is being done in the context of the PRSP process and through a Vietnamese government decree regulating the appropriation of ODA. Harmonisation by like-minded countries exercises a strong pull on outsiders. Lesson 3. It is important not to be exclusive but to admit others if they can find a way of participating in one or more projects run by the group. Acceptance of the PRSP process and of the MDGs as a framework for aid is the element which binds the group and provides the starting point for all joint activities; newcomers must therefore endorse these principles. Donor coordination and harmonisation via LENPA At the end of 2001 representatives of a number of donor organisations (CIDA, KfW, NORAD, DFID and DGIS) established a Learning Network on Programme-based Approaches (LENPA) to exchange information on all aspects of PRSPs and SWAps (jointly referred to as Programme-Based Approaches, PBAs). A conference is organised each year. In 2002 it was hosted by CIDA, with Accountability and Risk Management as the central topic. The Netherlands held the position of LENPA coordinator in In November 2003 GTZ and KfW organised a conference focusing on improving the effectiveness of PBA implementation. Delegates discussed the allocation of tasks and roles between central and line ministries, decentralisation issues and the role of non-governmental organisations. Japan will organise a conference on PBAs in Asia in May 2004, assisted by CIDA. In early 2005, a conference will be organised by USAID, which will have issues of capacity development as its central theme Multiannual perspective Key message: Structural cooperation as envisaged by the sector-wide approach calls for long-term commitment. However, this is sometimes difficult to sustain in the face of uncertainty concerning political and economic developments on both the donor and recipient side. 20

22 Genuine structural cooperation as envisaged by the sector-wide approach requires long-term planning and action. This principle is widely endorsed. 21 Yet it is currently one of the thorniest aspects of the sector-wide approach, since each long-term commitment requires above all a long-term political commitment linked to the guarantee of a multiannual budget. Political uncertainty This political commitment must come not just from the recipient governments but also from the donors themselves. Political commitment on the donor side is regularly put to the test. The sector-wide approach cannot be viewed in separation from the political environment in which aid is given. Continuity on both the donor and the recipient side is a must. This is not always easy to achieve, however. Moreover, as has become apparent, in a climate of national economic recession or zero growth, the Dutch development budget is just as exposed to cutbacks as any other policy area. Relationships between partners are subject to both highs and lows. Donors are responsible for some of these lows. 22 Long-term commitment to the sector-wide approach will remain vulnerable to internal political and economic changes. This can unfortunately no longer be ignored. The availability of development funds (and their allocation among the various aid channels bilateral, multilateral and nongovernmental) will continue to be subject to uncertainty. This makes it especially difficult for missions to operate. How far can they commit themselves? How reliable are the multiannual budgets at budget holder level? What criteria are applied when reviewing country and sector choices? What political arguments play a role? How are budgets allocated? Development is a long-term process. Decisions on extending bilateral development relationships with countries or support to sectors should be based on detailed analyses of prevailing trends. Yet at the same time, it must be recognised that cutbacks will sometimes be inevitable. 21 And thanks to the multiannual perspective adopted in the From Policy Budgets to Policy Accountability (VBTB) system, it has been incorporated in the relevant planning instruments for Dutch development cooperation. 22 The following bitter comment was made on a previous version of this document: No sooner have you got a successful SWAp up and running in your sector than the money dries up. 21